Wednesday, September 12, 2012

A Look at Gasoline Term Structure And the 3:2:1 Crack Spread

As consumers regain their senses from the shock of record-high Labor Day gasoline prices, we should examine the driving factors in the gasoline market and search for trade opportunities. Several factors contributed to the high prices we have experienced this summer, chief among them is a tight supply. The attached graph from the U.S. Energy Information Administration shows that we are close to the bottom of the five year average in gasoline stocks:

Much of this tightness can be attributed to high demand coupled with low supply. Hurricane Isaac forced the shutdown of oil rigs and refineries throughout the gulf coast, limiting supply. A fire at Venezuela's Amuay refinery further constricted refinery capacity and lowered available world-wide stocks. However, with the Amuay fire under control and Hurricane Isaac over, these refineries are now coming back online and should resume output soon. (more)

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